Money & Policy

Job Earnings Determine Social Security Investment

Here's how you earn Social Security credits while working for someone else

If you work for someone else, your employer withholds Social Security and Medicare taxes from your paycheck and sends those taxes to the Internal Revenue Service.

Your employer also sends the IRS a matching amount equal to what was ­withheld from your paycheck. All of your earnings are reported to Social Security by your employer.

If you are self-employed, you pay all your Social Security and Medicare taxes when you file your tax return and the IRS reports your earnings to Social Security.

You pay a rate equal to the combined employee/employer share, but there are special income tax deductions you can take that offset your taxes.

 The Social Security and Medicare taxes you pay are not put in a special account for you. They are used to pay benefits for people getting benefits today, just as your future benefits will be paid for by future workers.

Earning Social Security 'Credits'

As you work and pay Social Security taxes, you earn “credits” that count toward your eligibility for Social Security benefits (depending on your earnings, you can earn up to four credits each year). Most people need 10 years of work (40 credits) to qualify for benefits. Younger people need fewer credits to qualify for disability benefits or for their families to qualify for survivors benefits.

Figuring Social Security Benefits

Generally, your Social Security benefit is a percentage of your average lifetime earnings. Low-income workers receive a higher percentage of their average lifetime earnings than those in the upper income brackets. A worker with average earnings can expect a retirement benefit that replaces about 40 percent of his or her average lifetime earnings. 

Social Security never was intended to be your only source of income when you retire or become disabled or your family’s only income if you die. It is intended to supplement your savings, investments, pensions and insurance plans.

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